AMAT shares fall on outlook

ChrisKraeuter

SAN FRANCISCO (CBS.MW) -- Applied Materials shares dropped late Wednesday after the chip-equipment company predicted a significant drop-off in its fiscal first-quarter results due to cautious semiconductor manufacturers holding too much inventory.

Shares initially ticked higher after the Santa Clara, Calif.-based company
AMAT, +0.85%
reported sharp improvements Wednesday in its fiscal fourth-quarter net income and sales, and its order growth of 6.5 percent exceeded the company's predictions of flat to up 5 percent.

That advance reversed, however, after Applied Materials predicted its first-quarter orders would fall 35 percent from the fourth quarter. "There's an across-the-board cautiousness that has increased in the last 30 days," said Chief Executive Mike Splinter.

"Companies are really trying to decide what the market is going to be like before they decide what their cap-ex [capital expenditures] will be next year," he said. "They don't want to get overcommitted ahead of that decision."

Shares fell 2.9 percent to $16.84 in late trading after closing the regular session up 3.6 percent to a one-month high of $17.34.

Splinter said Applied Materials is responding to the changing environment by reducing variable costs, such as tightening down on spending, and trying to reduce its product costs.

Analyst Patrick Ho with Moors & Cabot said Applied Materials' outlook comes at a time when sentiment has been improving. "Applied is giving worse guidance on relatively better news coming out. This doesn't compute with what people are feeling right now," he said.

Applied Materials reports results a month after most of its peers and Ho said this new, negative development could cast a pall over industry stocks. "I'm surprised the stock isn't lower than it is in after-hours trading," he said.

Fourth quarter

For the quarter ended Oct. 31, the Santa Clara, Calif.-based manufacturer of chipmaking tools and equipment reported net income of $455 million, or 27 cents a share, on sales of $2.2 billion. During the same quarter last year, Applied Materials earned $15 million, or a penny a share, on sales of $1.22 billion.

Analysts expected earnings of 26 cents a share and sales of $2.29 billion, on average, according to Thomson First Call. At the start of the quarter, Applied Materials predicted earnings of 24 to 26 cents a share and sales between $2.24 billion and $2.36 billion.

Shares outstanding dropped 2.4 percent to 1.7 billion from 1.73 billion in the previous quarter, helping per-share earnings. Applied Materials repurchased $500 million of its own stock. Applied Materials' earnings also benefited by 2 cents a share from a litigation benefit and an export-tax benefit.

Applied Materials' gross margin contracted to 46.6 percent from 47.4 percent in the previous quarter. Margins are expected to decline again in the first quarter.

Orders were $2.62 billion, up 6.5 percent from the previous quarter. During the third quarter, orders were $2.46 billion, up 11 percent from the second quarter. Applied had predicted sequential order growth of flat to up 5 percent.

For the year, Applied Materials recorded net income of $1.35 billion, or 78 cents a share, and sales of $8.01 billion. For fiscal 2003, Applied Materials lost $149 million, or 9 cents a share, on sales of $4.48 billion.

First quarter

For the first quarter, Applied Materials expects its orders to drop 35 percent sequentially, to around $1.7 billion. Most analysts only expected orders to decline around 10 or 15 percent.

Earnings are expected to tally 15 to 16 cents a share and sales are expected to be between $1.7 billion and $1.73 billion, down 20 to 23 percent sequentially.

Analysts had expected earnings of 23 cents a share on sales of $2.2 billion.

Splinter said customers slowed purchases of 200 mm equipment, which accounted for 16 percent of overall sales, during the fourth quarter and that the trend will continue in the first quarter. Also, Splinter said orders will be down some on 300 mm equipment and flat panel display equipment would decline an unspecified amount.

He stated part of the magnitude of the quarter-on-quarter change in orders was due to higher-than-expected bookings in the fourth quarter. "It's timing really," said Splinter. "If our orders would have been $200 million lower in the fourth quarter and $200 million higher in the first quarter, you can do the math -- the percentage change would have been big-time different."

Overall, though, he said he was positive about his customers pushing ahead with technology investments despite increased caution. He highlighted new factory plans announced in past weeks by several chipmakers.

"We're acting like this is serious and that it could last a long time, however, all the signs we see are that people are still investing in 300 mm," Splinter said.

Equipment designed to handle wafers that are 200 mm in diameter represent an older technology that is being phased out by equipment that accommodates 300 mm wafers.

Intraday Data provided by SIX Financial Information and subject to terms of use. Historical and current end-of-day data provided by SIX Financial Information. All quotes are in local exchange time. Real-time last sale data for U.S. stock quotes reflect trades reported through Nasdaq only. Intraday data delayed at least 15 minutes or per exchange requirements.